The Manufacturing Purchasing Managers’ Index (PMI) by Nikkei was at 54.3 in February. The March numbers show a slump to 52.6. (Year 2019).

What is Purchasing Managers’ Index (PMI)?

The PMI is an index that reflects the economic health of the manufacturing sector and is based on the following: (1) New Orders, (2) Inventory Positions, (3) Production Numbers, (4) Supplier Deliveries, and (5) Employment Climate.

PMI provides a quantifiable perspective of the existing manufacturing environment helping business owners, trade analysts and purchasing managers form an opinion and plan strategies.

Monthly surveys of private sector companies are conducted of 400 managers in the manufacturing sector. Response is in the form of ‘Better’, ‘Same’ or ‘Worse’ conditions in comparison to the previous month. Across multiple factors, the change (improvements) from previous month’s response is arrived at. The percentages are multiplied by a weighing factor (the factors adding to 1) and are added.

PMI for India

This PMI is calculated in multiple countries by various agencies. PMI Data is published compiled and constructed by Markit Economics and published by Nikkei in Inda. Likewise ISM does it for the US market. Similar exercise is carried out for the services industry as well. An index value 50 percent or above indicates an improvement in the manufacturing sector – expansion in the manufacturing sector.

Purchasing Managers’ Index v Index of Industrial Production (IIP)

The growth in the industrial sector in India is also prepared by CSO callled the Index of Industrial Production (IIP). The IIP indicates the change in volume produced in major Industrial sub-sectors like (1) manufacturing, (2) mining and (3) electricity. While IIP tracks the growth/decline in terms of output volume, PMI tracks the perception shift across various constituents of the manufacturing industry.

Process

PMI is arrived at by two agencies: Institute for Supply Management (ISM), and Markit Group. ISM and Markit Group separately bring out PMI surveys each month. Monthly PMI has two parts: (a) Headline PMI number, and (b) Sub-indices. While the Headline PMI is one number that captures the health of the economy, the sub-indices highlight inflation, exports, employment and inventory.